Forward loans can become a cost trap: As a study by AstroFinance indicates, the loans are by no means always worthwhile. Rather than protecting against rising interest rates, they often cause horrendous additional costs: borrowers have paid up to 30,000 euros too much over the past few years.
Based on in-house data, AstroFinance analyzed the results of forward loans, which had been completed since 2002. The result is disappointing: with a lead time of one year, the degree would have been worthwhile in only 25 percent of the cases.
The longer the lead time, the less likely the completion of a forward loan will pay off. With a lead time of two and three years, in only 17 percent of cases would it have been better to provide funding with a Foward loan than without.
Borrowers use a forward loan to secure the loan terms for the equivalent of a loan, which is paid out at a later date. The model is used by builders and buyers, whose plans are still a few years in the future, as well as by owners, who would like to secure a favorable follow-up financing.
As the study shows, the conclusion of a binding forward loan can make financing extremely expensive. Whether this occurs depends solely and solely on the interest rate trend on the capital market, which nobody can foresee with certainty. Anyone who has completed a forward loan with a 3-year lead-time and 10-year fixed interest rate in 2002 had to pay 30,000 euros more for a loan of 100,000 euros, because the loan would have been three percentage points lower in 2005 ,
Low interest rates
According to the study, borrowers could only benefit if they completed a forward loan with two years’ notice in 2005. Then, with a loan amount of 100,000 euros, a total of 4,500 euros could be saved. The initiator of the study, Max Herbst, adds: “Forward loans are worthwhile only if interest rates are so low that it is very likely to increase in the near future”.
Nobody can foresee the future development of interest rates. Nevertheless, forward loans can be worthwhile because interest rates are currently extremely low and low interest rates due to special circumstances on the capital markets (including the run on German government bonds as a result of concerns over sovereign default in southern Europe). results.
If possible, the lead time should be kept short: borrowers have to pay extra for each additional month that the loan is paid out in the future.